ZipRecruiter(ZIP) - 2022 Q3 - Quarterly Report

General Information Form 10-Q Filing Details This section details the administrative information for ZipRecruiter, Inc.'s Form 10-Q filing for the quarter ended September 30, 2022, covering registration, offices, and stock exchange listing Form 10-Q Filing Details | Detail | Value | | :--- | :--- | | Filing Type | Quarterly Report (Form 10-Q) | | Period Ended | September 30, 2022 | | Registrant Name | ZIPRECRUITER, INC. | | State of Incorporation | Delaware | | Commission File Number | 001-40406 | | Principal Executive Offices | 604 Arizona Avenue, Santa Monica, CA 90401 | | Telephone Number | (877) 252-1062 | | Class A Common Stock Trading Symbol | ZIP | | Exchange | New York Stock Exchange | | Class A Common Stock Outstanding (Nov 2, 2022) | 79,824,291 shares | | Class B Common Stock Outstanding (Nov 2, 2022) | 30,361,349 shares | | Filer Status | Non-accelerated filer, Emerging growth company | Preliminary Information Note Regarding Forward-Looking Statements The Quarterly Report contains forward-looking statements about future operating results, financial position, business strategy, and market growth, subject to risks, uncertainties, and assumptions where actual results may differ materially from expectations - Forward-looking statements cover future financial performance (revenue, costs, profitability), macroeconomic factors (inflation, interest rates, COVID-19), business growth management, competition, marketplace enhancements, user growth, technology, employee retention, strategic execution, seasonal trends, market expansion, brand protection, regulatory compliance, and public company expenses[9][10][12] - Readers are cautioned not to rely on forward-looking statements as predictions of future events, as actual results could differ materially due to various risks and uncertainties, including those detailed in the 'Risk Factors' section[13][14] Summary of Risk Factors A high-level overview of the significant risks and uncertainties facing ZipRecruiter includes intense competition, economic fluctuations, the unpredictable impact of COVID-19, software performance issues, reliance on customer renewals, challenges in managing growth, market volatility, brand reputation, indebtedness, and the dual-class stock structure - Key risks include intense competition, sensitivity to general economic conditions (including inflation and interest rates), ongoing unpredictable effects of COVID-19, potential software failures, dependence on employer renewals/upgrades, challenges in managing growth, market volatility in job advertisement services, and the ability to sell to a broad mix of businesses[17] - Further risks involve reliance on attracting and retaining talented employees (including CEO Ian Siegel), impact of internet search engine methodology changes, significant quarterly result fluctuations, maintaining brand value, indebtedness affecting liquidity, market volatility of Class A common stock, and concentrated voting control due to the dual-class stock structure[19] Part I - Financial Information Item 1. Unaudited Condensed Consolidated Financial Statements ZipRecruiter's unaudited condensed consolidated financial statements include balance sheets, statements of operations, comprehensive income (loss), changes in equity, and cash flows, along with detailed notes on accounting policies, revenue recognition, debt, commitments, financial instruments, stock-based compensation, and income taxes for the periods ended September 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets The balance sheet shows a significant increase in total assets from $398.6 million at December 31, 2021, to $818.4 million at September 30, 2022, primarily driven by increases in cash and cash equivalents and marketable securities, with total liabilities also rising substantially due to new long-term borrowings Condensed Consolidated Balance Sheets (in thousands) | Item | Sep 30, 2022 | Dec 31, 2021 | Change (thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Assets | | | | | | Cash and cash equivalents | $482,978 | $254,621 | $228,357 | 89.7% | | Marketable securities | $186,723 | — | $186,723 | N/A | | Accounts receivable, net | $47,640 | $41,657 | $5,983 | 14.4% | | Total current assets | $733,415 | $310,639 | $422,776 | 136.1% | | Total assets | $818,411 | $398,619 | $419,792 | 105.3% | | Liabilities | | | | | | Accounts payable | $13,736 | $24,862 | $(11,126) | -44.7% | | Accrued expenses | $75,761 | $86,213 | $(10,452) | -12.1% | | Accrued interest | $5,938 | — | $5,938 | N/A | | Long-term borrowings | $541,313 | — | $541,313 | N/A | | Total liabilities | $685,149 | $163,651 | $521,498 | 318.7% | | Stockholders' Equity | | | | | | Total stockholders' equity | $133,262 | $234,968 | $(101,706) | -43.3% | - The significant increase in total assets and long-term borrowings is primarily due to the issuance of $550.0 million senior unsecured notes in January 2022, which substantially boosted cash and cash equivalents and allowed for investments in marketable securities[21][95][230] Condensed Consolidated Statements of Operations For the three months ended September 30, 2022, revenue increased by 7% year-over-year, while net income slightly decreased, and for the nine months ended September 30, 2022, the company reported a significant turnaround from a net loss to a net income, with revenue growing by 33% Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Item | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | % Change (3M) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | % Change (9M) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue (thousands) | $226,968 | $212,672 | 6.7% | $694,171 | $521,004 | 33.2% | | Cost of revenue (thousands) | $21,839 | $22,277 | -2.0% | $65,202 | $59,838 | 9.0% | | Gross profit (thousands) | $205,129 | $190,395 | 7.7% | $628,969 | $461,166 | 36.4% | | Sales and marketing (thousands) | $112,574 | $112,178 | 0.3% | $386,795 | $289,825 | 33.5% | | Research and development (thousands) | $33,008 | $27,155 | 21.5% | $93,577 | $82,079 | 14.0% | | General and administrative (thousands) | $30,076 | $33,094 | -9.2% | $79,805 | $123,145 | -35.2% | | Income (loss) from operations (thousands) | $29,471 | $17,968 | 64.0% | $68,792 | $(33,883) | N/A | | Interest expense (thousands) | $(7,361) | $(221) | 3230.8% | $(21,157) | $(696) | 2940.5% | | Net income (loss) (thousands) | $20,556 | $22,060 | -6.9% | $42,083 | $(17,389) | N/A | | Basic EPS | $0.18 | $0.19 | -5.3% | $0.36 | $(0.19) | N/A | | Diluted EPS | $0.17 | $0.17 | 0.0% | $0.34 | $(0.19) | N/A | - The substantial increase in interest expense for both periods is primarily due to the issuance of $550.0 million senior unsecured notes in January 2022[24][95][230] - General and administrative expenses decreased significantly for the nine months ended September 30, 2022, mainly due to lower professional fees related to the Direct Listing and reduced stock-based compensation compared to the prior year[24][215] Condensed Consolidated Statements of Comprehensive Income (Loss) For the three and nine months ended September 30, 2022, ZipRecruiter reported total comprehensive income of $20.4 million and $41.9 million, respectively, which includes net income adjusted for unrealized losses on available-for-sale debt securities Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Item | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) (thousands) | $20,556 | $22,060 | $42,083 | $(17,389) | | Unrealized losses on available-for-sale debt securities | $(146) | — | $(146) | — | | Total comprehensive income (loss) (thousands) | $20,410 | $22,060 | $41,937 | $(17,389) | - Unrealized losses on available-for-sale debt securities of $0.1 million were recorded in both the three and nine months ended September 30, 2022, reflecting new investments in such securities during the period[27][55] Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) This statement details the changes in stockholders' equity, showing a decrease in total equity from $234.9 million at December 31, 2021, to $133.3 million at September 30, 2022, with key activities including significant share repurchases, stock-based compensation, and net income, alongside the conversion of Class B stock to Class A Key Changes in Stockholders' Equity (in thousands) - Nine Months Ended Sep 30, 2022 | Item | Amount (thousands) | | :--- | :--- | | Balance as of Dec 31, 2021 | $234,968 | | Stock-based compensation (thousands) | $57,478 | | Shares withheld related to net share settlement (thousands) | $(14,735) | | Repurchase and retirement of common stock (thousands) | $(198,678) | | Net income (thousands) | $42,083 | | Other comprehensive loss (thousands) | $(146) | | Balance as of Sep 30, 2022 | $133,262 | - The company repurchased 10.7 million shares of Class A common stock for $200.1 million during the nine months ended September 30, 2022, significantly impacting total stockholders' equity[134] - Stock-based compensation expense totaled $57.5 million for the nine months ended September 30, 2022, contributing to changes in additional paid-in capital[139] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, cash and cash equivalents significantly increased by $228.4 million, primarily driven by substantial cash provided by financing activities, largely from the issuance of senior unsecured notes, despite cash used in investing activities for marketable securities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities (thousands) | $84,348 | $89,775 | | Net cash used in investing activities (thousands) | $(195,279) | $(11,163) | | Net cash provided by financing activities (thousands) | $339,288 | $11,730 | | Net increase in cash and cash equivalents (thousands) | $228,357 | $90,342 | | Cash and cash equivalents, beginning of period (thousands) | $254,621 | $114,539 | | Cash and cash equivalents, end of period (thousands) | $482,978 | $204,881 | - Operating cash flow decreased slightly to $84.3 million in 2022 from $89.8 million in 2021, influenced by net income, non-cash charges, and changes in operating assets and liabilities[240][242][243] - Investing activities saw a significant increase in cash usage to $195.3 million in 2022, primarily due to $186.7 million in purchases of marketable securities[240][244] - Financing activities provided $339.3 million in 2022, largely from $550.0 million in proceeds from senior unsecured notes, partially offset by $198.7 million in common stock repurchases[240][247] Notes to the Condensed Consolidated Financial Statements Detailed explanations and disclosures for the condensed consolidated financial statements cover the company's organization, accounting policies, net income per share, revenue disaggregation, accrued expenses, debt, commitments, financial instruments, common stock, share repurchase program, stock-based compensation, and income taxes Note 1. Organization and Description of Business ZipRecruiter, Inc. operates as a two-sided marketplace connecting employers and job seekers online, incorporated in Delaware in 2010, with subsidiaries in Israel, UK, and Canada - ZipRecruiter, Inc. was incorporated in Delaware on June 29, 2010, and operates as a two-sided marketplace connecting employers and job seekers[41] - The Company includes its wholly-owned subsidiaries: ZipRecruiter Israel Ltd., ZipRecruiter UK Ltd., and ZipRecruiter Canada Ltd[41] Note 2. Basis of Presentation, Principles of Consolidation, and Summary of Significant Accounting Policies This note outlines the basis for preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, including principles of consolidation, use of estimates, and significant accounting policies for investments, also detailing recent accounting pronouncements and the company's election as an emerging growth company to delay adoption of new standards - Financial statements are prepared in conformity with U.S. GAAP for interim information, consolidating all wholly-owned subsidiaries[42][43] - Significant estimates include revenue recognition, operating lease assets/liabilities, stock-based awards, accounts receivable collectability, investment valuation, impairment of assets, and income taxes, with increased judgment due to COVID-19's evolving impact[47][50][51] - Investment portfolio primarily consists of highly rated debt securities and money market mutual funds, classified as current assets[52][53] Money market funds are equity securities at fair value (unrealized gains/losses in other income), and debt securities are available-for-sale (unrealized gains/losses in OCI)[54][55] - The Company operates as a single operating segment, with non-material revenue or assets from outside the U.S[60] - As an emerging growth company (EGC), the Company elected to delay adoption of new accounting pronouncements until applicable to private companies, but will no longer qualify as an EGC at the end of fiscal year 2022[67] - Upcoming accounting pronouncements include ASU 2016-13 (Credit Losses) and ASU 2019-12 (Income Taxes), both effective December 31, 2022, with evaluation ongoing[68][69] Note 3. Net Income (Loss) Per Share This note details the calculation of basic and diluted net income (loss) per share using the two-class method, considering Class A and Class B common stock, and outlines potentially dilutive securities excluded from diluted EPS calculations due to their anti-dilutive effect - Basic and diluted net income (loss) per share are computed using the two-class method, with identical liquidation and dividend rights for Class A and Class B common stock[71][75] Basic Net Income (Loss) Per Share (in thousands, except per share amounts) | Item | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to Class A and Class B common stockholders (thousands) | $20,556 | $22,060 | $42,083 | $(18,869) | | Weighted average shares of Class A and Class B common stock outstanding | 113,059 | 115,372 | 116,184 | 97,159 | | Net income (loss) per share attributable to Class A and Class B common stockholders, basic | $0.18 | $0.19 | $0.36 | $(0.19) | Diluted Net Income (Loss) Per Share (in thousands, except per share amounts) | Item | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to Class A and Class B common stockholders (thousands) | $20,556 | $22,060 | $42,083 | $(18,869) | | Weighted average shares of Class A and Class B common stock outstanding, diluted | 119,810 | 126,474 | 123,616 | 97,159 | | Net income (loss) per share attributable to Class A and Class B common stockholders, diluted | $0.17 | $0.17 | $0.34 | $(0.19) | Potentially Dilutive Common Stock Equivalents Excluded (in thousands) | Item | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Options to purchase common stock | 102 | — | 77 | 15,249 | | Restricted stock units | 6,197 | 21 | 5,777 | 5,620 | | Employee stock purchase plan | 245 | 88 | 213 | 30 | | Total shares excluded from diluted net income (loss) per share | 6,544 | 109 | 6,067 | 34,364 | Note 4. Revenue Information ZipRecruiter disaggregates its revenue into subscription and performance-based streams, with total revenue increasing by 7% year-over-year for the three months ended September 30, 2022, driven by 29% performance-based revenue growth, and 33% total revenue growth for the nine months, with performance-based revenue up 62% Revenue Streams (in thousands) | Revenue Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | % Change (3M) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | % Change (9M) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Subscription (thousands) | $175,129 | $172,525 | 1.5% | $537,290 | $424,321 | 26.6% | | Performance-based (thousands) | $51,839 | $40,147 | 29.1% | $156,881 | $96,683 | 62.3% | | Total revenue (thousands) | $226,968 | $212,672 | 6.7% | $694,171 | $521,004 | 33.2% | - Subscription revenue includes time-based job posting plans, upsell services, and resume database plans, recognized ratably over the subscription period[183][184][185][186] - Performance-based revenue is recognized when a candidate clicks on or applies to a job, typically with a contractual maximum per campaign[186] Note 5. Accrued Expenses Accrued expenses decreased from $86.2 million at December 31, 2021, to $75.8 million at September 30, 2022, primarily due to reductions in accrued non-income taxes, marketing, and compensation and benefits Accrued Expenses (in thousands) | Item | Sep 30, 2022 | Dec 31, 2021 | Change (thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Accrued marketing (thousands) | $21,704 | $22,493 | $(789) | -3.5% | | Accrued compensation and benefits (thousands) | $24,731 | $26,621 | $(1,890) | -7.1% | | Accrued partner expenses (thousands) | $7,815 | $8,457 | $(642) | -7.6% | | Accrued commissions (thousands) | $6,740 | $5,790 | $950 | 16.4% | | Accrued non-income taxes (thousands) | $2,692 | $11,250 | $(8,558) | -76.1% | | Total accrued expenses (thousands) | $75,761 | $86,213 | $(10,452) | -12.1% | - The significant decrease in accrued non-income taxes reflects a $6.8 million charge recorded in the prior-year period that was not repeated[86][214][215] Note 6. Debt The company's debt structure includes a $250.0 million credit facility with $244.5 million available as of September 30, 2022, and the issuance of $550.0 million in senior unsecured notes in January 2022, bearing 5% annual interest and maturing in 2030, with the company in compliance with all debt covenants - The Company has a $250.0 million credit facility maturing April 30, 2026, with $244.5 million available as of September 30, 2022, and no outstanding amounts[89][94][226][229] - In January 2022, $550.0 million in senior unsecured notes due 2030 were issued, bearing 5% annual interest, payable semi-annually[95][96][230] - Interest expense related to the notes was $7.1 million for the three months and $20.5 million for the nine months ended September 30, 2022, with an effective interest rate of 5.4%[102] - The notes are redeemable at the Company's option, with specific redemption prices and conditions, and include customary negative covenants and events of default[99][100][231][232] Note 7. Commitments and Contingencies This note addresses legal matters, indemnification obligations, and non-income taxes, mentioning a class action lawsuit settled for an immaterial amount with court approval anticipated by early 2023, and stating no material liability has been accrued for indemnification arrangements - A putative class action lawsuit filed in April 2019 regarding Fair Credit Reporting Act and compensation claims was settled for an immaterial amount, with court approval expected by early 2023[104][106] - The Company provides indemnification of varying scopes and terms to customers, investors, directors and officers, but has not accrued a liability as the likelihood of payment is neither probable nor reasonably estimable[107] - Non-income taxes are accrued when a loss is probable and estimable, with final outcomes potentially differing materially from expectations due to complexity[108] Note 8. Financial Instruments This note details the fair value measurements of financial instruments, including cash equivalents and marketable securities, categorized by Level 1 and Level 2 inputs, with the company holding $669.7 million in total investments as of September 30, 2022, and most available-for-sale debt securities maturing within one year - Financial instruments measured at fair value on a recurring basis include cash equivalents and marketable securities, categorized into Level 1 (quoted prices in active markets) and Level 2 (observable inputs other than Level 1)[109][111][112] Financial Assets Measured at Fair Value (in thousands) as of Sep 30, 2022 | Asset Type | Fair Value Level | Fair Value (thousands) | Amortized Cost (thousands) | Gross Unrealized Gains (thousands) | Gross Unrealized Losses (thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash | Level 1 | $269,408 | $269,408 | $— | $— | | Money market mutual funds | Level 1 | $201,639 | $201,639 | $— | $— | | U.S. treasury securities | Level 1 | $120,416 | $120,434 | $22 | $(40) | | Commercial paper | Level 2 | $12,255 | $12,255 | $— | $— | | Certificates of deposit | Level 2 | $4,322 | $4,322 | $— | $— | | Corporate notes and obligations | Level 2 | $58,526 | $58,706 | $6 | $(186) | | Asset-backed securities | Level 2 | $3,135 | $3,134 | $2 | $(1) | | Total | | $669,701 | $669,898 | $30 | $(227) | - The aggregate fair value of senior unsecured notes was estimated at $442.8 million as of September 30, 2022, based on Level 2 inputs[117] Available-for-sale Debt Securities by Contractual Maturity (in thousands) as of Sep 30, 2022 | Maturity | Fair Value (thousands) | | :--- | :--- | | Due within 1 year | $182,997 | | Due after 1 year through 5 years | $15,657 | | Total | $198,654 | Note 9. Common Stock and Redeemable Convertible Preferred Stock This note describes the company's common stock structure, consisting of Class A (one vote per share) and Class B (twenty votes per share) common stock with identical dividend and liquidation rights, also detailing the conversion of all redeemable convertible preferred stock into 24.2 million shares of Class B common stock in May 2021 - The Company is authorized to issue 700 million shares of Class A common stock (one vote per share) and 700 million shares of Class B common stock (twenty votes per share), both with identical dividend and liquidation rights[126][127] - Class B common stock converts to Class A common stock at the holder's option or automatically upon certain transfers[127] - On May 14, 2021, all outstanding Series A and Series B preferred stock converted into 24.2 million shares of Class B common stock[130] Note 10. Share Repurchase Program In February 2022, the board authorized a $100.0 million share repurchase program, increased by $150.0 million in June 2022, totaling $250.0 million, and as of September 30, 2022, the company repurchased 10.7 million shares for $200.1 million, with $49.9 million remaining available - The board authorized a share repurchase program of up to $100.0 million in February 2022, increased by $150.0 million in June 2022, for a total of $250.0 million[131] - During the nine months ended September 30, 2022, 10.7 million shares of Class A common stock were repurchased for $200.1 million through ASRs, Rule 10b5-1 plans, and open market purchases[134] - As of September 30, 2022, approximately $49.9 million remained available under the program, which has no expiration date[135] Note 11. Stock-Based Compensation Total stock-based compensation expense for the nine months ended September 30, 2022, was $57.5 million, a decrease from $87.6 million in the prior year, with this note detailing expenses across various departments, equity incentive plans (2021 Plan, ESPP), and RSU activity, including the CEO Performance Award Total Stock-Based Compensation Expense (in thousands) | Department | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Cost of revenue (thousands) | $210 | $158 | $613 | $911 | | Sales and marketing (thousands) | $2,890 | $2,999 | $7,947 | $15,415 | | Research and development (thousands) | $7,655 | $6,935 | $23,215 | $26,333 | | General and administrative (thousands) | $8,569 | $11,941 | $25,703 | $44,966 | | Total | $19,324 | $22,033 | $57,478 | $87,625 | - The 2021 Equity Incentive Plan authorized 18.4 million shares of Class A common stock, with 11.8 million available for future issuance as of September 30, 2022[142] - The 2021 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase Class A common stock at a 15% discount, with $8.1 million in purchases during the nine months ended September 30, 2022[143][146] - Unrecognized stock-based compensation expense for unvested stock options was $3.9 million (1.1 years weighted average period) and for RSUs (excluding CEO Performance Award and certain performance-based RSUs) was $151.7 million (1.5 years weighted average period) as of September 30, 2022[148][155] Note 12. Income Taxes Income tax expense increased by $6.3 million for the three months and $23.0 million for the nine months ended September 30, 2022, compared to the prior year, primarily due to increased pre-tax profitability and reduced tax benefits from stock option exercises, with the effective tax rate for the nine months at 12.3% Income Tax Expense (Benefit) and Effective Tax Rate (in thousands, except percentages) | Item | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Income tax expense (benefit) (thousands) | $1,875 | $(4,467) | $5,884 | $(17,139) | | Effective tax rate | 8.4% | (25.4)% | 12.3% | 49.6% | | Statutory federal income tax rate | 21% | 21% | 21% | 21% | - The effective tax rate differed from the U.S. federal statutory rate due to book and tax differences from non-qualified stock options, RSU settlements, R&D tax credits, and non-deductible expenses[158] - A $12.0 million valuation allowance was established against California research and development credit carryforwards during the three months ended September 30, 2022, as their realization became less probable[159] Note 13. Subsequent Events In November 2022, the board of directors authorized an additional $200.0 million increase to the share repurchase program, bringing the total authorized amount to $450.0 million - In November 2022, the board authorized an additional $200.0 million for the share repurchase program, increasing the total authorized amount to $450.0 million[161] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on ZipRecruiter's financial condition and operational results details revenue streams, key performance metrics, cost structures, and liquidity, highlighting the company's mission, investment strategies, and the impact of macroeconomic conditions on its business Overview ZipRecruiter operates a two-sided marketplace connecting employers and job seekers, generating revenue primarily from employer fees, and plans aggressive investments in its marketplace to drive growth, focusing on expanding footprints, increasing engagement, and enhancing machine learning - ZipRecruiter's mission is to actively connect people to their next great opportunity through a two-sided marketplace for work[164] - Revenue is primarily generated from employer fees for job postings and other marketplace features, offered at flat rates or performance-based pricing[164] - The company plans aggressive investments in its marketplace to expand employer and job seeker footprints, increase engagement, and enhance datasets and machine learning[166] Key Financial Highlights (in millions) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $227.0 | $212.7 | $694.2 | $521.0 | | Net income (loss) | $20.6 | $22.1 | $42.1 | $(17.4) | | Adjusted EBITDA (thousands) | $51,662 | $42,465 | $134,259 | $60,741 | Key Operating Metrics and Non-GAAP Financial Measures This section defines and analyzes key operating metrics and non-GAAP financial measures, including Quarterly Paid Employers, Revenue per Paid Employer, Adjusted EBITDA, and Adjusted EBITDA Margin, highlighting a decrease in Quarterly Paid Employers but an increase in Revenue per Paid Employer due to employers seeking better matching technology amidst a cooling hiring environment Key Operating Metrics | Metric | Mar 31, 2021 | Jun 30, 2021 | Sep 30, 2021 | Dec 31, 2021 | Mar 31, 2022 | Jun 30, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Quarterly Paid Employers | 114,705 | 169,191 | 169,535 | 147,081 | 150,233 | 156,537 | 135,703 | | Revenue per Paid Employer | $1,093 | $1,081 | $1,254 | $1,497 | $1,513 | $1,533 | $1,673 | - Quarterly Paid Employers decreased in Q3 2022 compared to Q2 2022, reflecting a softening in hiring activity due to supply chain disruptions, inflation, and rising interest rates[171] - Revenue per Paid Employer increased in Q3 2022 compared to Q2 2022, as employers became more selective and sought solutions with better matching technology in a cooling hiring environment[173] Adjusted EBITDA and Margin (in thousands, except percentages) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EBITDA (thousands) | $51,662 | $42,465 | $134,259 | $60,741 | | Adjusted EBITDA margin | 23% | 20% | 19% | 12% | - Adjusted EBITDA and Adjusted EBITDA margin improved year-over-year for both the three and nine months ended September 30, 2022, indicating improved operational performance[169][180] Impact of Macroeconomic Conditions Macroeconomic conditions, including supply chain disruptions, inflation, and rising interest rates, led to employers pulling back on job postings in Q3 2022, yet revenue increased by 7% year-over-year due to higher demand for products and services in a competitive labor market - Revenue increased by 7% for the three months ended September 30, 2022, driven by higher demand for products amidst a competitive labor market[181] - Employers reduced job postings in Q3 2022 due to macroeconomic factors like supply chain disruptions, inflation, and rising interest rates[181] - The global economic recovery remains uncertain and unpredictable, influenced by the COVID-19 pandemic and other factors, potentially impacting demand for services[181] Components of Our Results of Operations This section details the components of ZipRecruiter's financial results, including revenue streams (subscription and performance-based), cost of revenue, and operating expenses (sales and marketing, research and development, general and administrative, interest, other income/expense, and income tax expense/benefit) - Revenue is primarily generated from employer fees for job postings and distribution, categorized into subscription revenue (time-based plans, upsells, resume database) and performance-based revenue (per click or application)[182][183][184][185][186] - Cost of revenue includes third-party hosting, credit card processing fees, customer support personnel costs, partner revenue share, job distribution costs, and amortization of capitalized software[189] - Operating expenses include sales and marketing (personnel, advertising), research and development (personnel, capitalized software amortization), and general and administrative (personnel, professional services, public company transition costs)[192][194][197] - Interest expense covers borrowings and issuance costs, while other income (expense) includes interest income, foreign currency gains/losses, and sublease income[199][200] - Income tax expense (benefit) is influenced by pre-tax income/loss, book-tax differences from stock options/RSUs, R&D tax credits, and non-deductible expenses[201] Results of Operations This section provides a detailed comparison of ZipRecruiter's consolidated results of operations for the three and nine months ended September 30, 2022, versus 2021, analyzing changes in revenue, cost of revenue, gross margin, and operating expenses Consolidated Results of Operations (in thousands) | Item | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | % Change (3M) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | % Change (9M) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue (thousands) | $226,968 | $212,672 | 6.7% | $694,171 | $521,004 | 33.2% | | Cost of revenue (thousands) | $21,839 | $22,277 | -2.0% | $65,202 | $59,838 | 9.0% | | Gross profit (thousands) | $205,129 | $190,395 | 7.7% | $628,969 | $461,166 | 36.4% | | Sales and marketing (thousands) | $112,574 | $112,178 | 0.3% | $386,795 | $289,825 | 33.5% | | Research and development (thousands) | $33,008 | $27,155 | 21.5% | $93,577 | $82,079 | 14.0% | | General and administrative (thousands) | $30,076 | $33,094 | -9.2% | $79,805 | $123,145 | -35.2% | | Income (loss) from operations (thousands) | $29,471 | $17,968 | 64.0% | $68,792 | $(33,883) | N/A | | Net income (loss) (thousands) | $20,556 | $22,060 | -6.9% | $42,083 | $(17,389) | N/A | - Revenue growth for the three months was driven by a 29% increase in performance-based revenue, while for the nine months, both subscription (27%) and performance-based (62%) revenue contributed significantly[204][205] - Gross margin remained flat at 90% for the three months but improved from 89% to 91% for the nine months, reflecting operational efficiencies[206][207] - Sales and marketing expenses were flat for the three months (increased headcount offset by reduced advertising) but grew 33% for the nine months due to increased advertising and personnel costs[209][210] - General and administrative expenses decreased significantly for both periods, primarily due to lower non-income tax expense, reduced stock-based compensation (related to prior-year RSU vesting and COO modification), and non-recurring Direct Listing fees in the prior year, partially offset by increased personnel costs[214][215] - Total other expense, net, increased substantially due to $7.1 million (3M) and $20.5 million (9M) in interest expense from the senior unsecured notes issued in January 2022[219][220] Liquidity and Capital Resources ZipRecruiter maintains a strong liquidity position with $669.7 million in cash, cash equivalents, and marketable securities, and $244.5 million available under its credit facility as of September 30, 2022, having issued $550.0 million in senior unsecured notes in January 2022 and repurchased $200.1 million of common stock during the nine months ended September 30, 2022 - As of September 30, 2022, the company had $669.7 million in cash, cash equivalents, and marketable securities, and $244.5 million available under its $250.0 million credit facility[222][226] - In January 2022, $550.0 million in senior unsecured notes due 2030 were issued, contributing significantly to financing activities[230] - The company repurchased 10.7 million shares of Class A common stock for $200.1 million during the nine months ended September 30, 2022, under a $250.0 million share repurchase program[234] - New investments in highly rated debt securities and money market mutual funds totaled $186.7 million during the three months ended September 30, 2022, to manage excess cash reserves[236][244] - The Tax Cuts and Jobs Act of 2017, requiring amortization of R&D expenditures over five years, is expected to decrease cash from operations in 2022 if not deferred or repealed[238] Cash Flow Summary (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities (thousands) | $84,348 | $89,775 | | Net cash used in investing activities (thousands) | $(195,279) | $(11,163) | | Net cash provided by financing activities (thousands) | $339,288 | $11,730 | | Net increase in cash and cash equivalents (thousands) | $228,357 | $90,342 | Critical Accounting Policies and Estimates Management's discussion and analysis relies on estimates and assumptions in financial statement preparation, particularly for revenue recognition, stock-based compensation, and income taxes, with no changes to critical accounting policies made except for those related to senior unsecured notes, investments, and share repurchases - Preparation of financial statements requires management to make estimates and assumptions affecting reported amounts, including revenue recognition, stock-based compensation, and income taxes[250] - No changes to critical accounting policies and estimates were made, except for those related to senior unsecured notes, investments, and share repurchases[251] - The company, as an emerging growth company, elected to use an extended transition period for new accounting standards but will no longer qualify as an EGC at the end of fiscal year 2022[252][253] Item 3. Quantitative and Qualitative Disclosures About Market Risk ZipRecruiter is exposed to market risks primarily related to interest rates and foreign currency exchange rates, with its credit facility having a floating interest rate and senior unsecured notes a fixed rate, while investments are subject to interest rate fluctuations and foreign currency exposure arises from international expenses - The company is subject to interest rate risk from its credit facility (floating rate) and investments, but not from its fixed-rate senior unsecured notes[256][257][258] - A hypothetical 100 basis point increase in interest rates would result in a $0.9 million decrease in the fair value of the investment portfolio as of September 30, 2022[258] - Foreign currency risk primarily stems from expenses denominated in Canadian Dollar, British Pound, and Israeli New Shekel, but a hypothetical 10% change in exchange rates would not materially impact financial statements[259] Item 4. Controls and Procedures Management, including the principal executive and financial officers, concluded that ZipRecruiter's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2022, with no material changes in internal control over financial reporting identified during the quarter - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of September 30, 2022[261] - No material changes in internal control over financial reporting were identified during the quarter ended September 30, 2022[262] Part II - Other Information Item 1. Legal Proceedings The company is subject to various legal proceedings and claims arising from the normal course of its business activities, as detailed in Note 7 – Commitments and Contingencies - The company is subject to various legal proceedings and claims arising from the normal course of its business activities, as detailed in Note 7 – Commitments and Contingencies[264] Item 1A. Risk Factors Significant risks associated with investing in ZipRecruiter's Class A common stock are outlined, categorized into operational, legal and regulatory, other business-related, and stock ownership risks, which could materially and adversely affect the company's business, financial condition, operating results, and future prospects - Investing in Class A common stock involves a high degree of risk, and potential investors should carefully consider all risks and uncertainties described[265] Risk Related to Our Business Operational risks include intense competition, sensitivity to economic conditions, the unpredictable impact of COVID-19, potential software failures, reliance on customer renewals, challenges in managing growth, market volatility, brand reputation, new product development, AI use, market growth forecasts, strategic partnerships, corporate culture, technological disruption, seasonality, performance metrics, revenue concentration, sales & marketing expansion, configuration demands, and technical support - Intense competition from larger, more established online job sites and new entrants could lead to market share loss, pricing pressure, and adverse effects on business and financial condition[266][267][268][269] - Business is significantly affected by general economic conditions, with demand for hiring services vulnerable to economic downturns, inflation, and rising interest rates, and recovery remaining uncertain[271][272][273][274] - The ongoing COVID-19 pandemic and related macroeconomic impacts continue to cause significant uncertainty and disruption, affecting economic activity, business operations, and potentially heightening other risks[275][277][278][279] - Reliance on highly technical and complex software means failures, errors, or inability to scale infrastructure could damage reputation, reduce market share, and lead to liability claims[280][282][283][284][285] - Future success depends on employers purchasing, renewing, or upgrading subscriptions and performance-based services; any decline could harm operating results[287][289][290] - Inability to effectively manage past and future growth could adversely affect business, operating results, and financial condition, placing significant demands on management and resources[291][292] - Dependence on attracting and retaining talented employees, including CEO Ian Siegel and senior management, is critical for executing business strategy; loss of key personnel could adversely affect the business[296][297] - Reliance on internet search engines and other channels for traffic means changes in methodologies or declining search rankings could reduce user growth[298][299][300] - Quarterly results may fluctuate significantly due to various factors (e.g., employer acquisition, renewal rates, operating expenses, economic conditions, seasonality), making future results difficult to predict[301][302] - Success depends on maintaining the value and reputation of the ZipRecruiter brand; negative publicity or failure to provide compelling services could harm the brand and business[303] - Failure to provide successful enhancements, new products, services, and features, or keep pace with technological changes, could adversely affect the business[304][305] - Issues with the use of artificial intelligence (AI), such as flawed algorithms or biased data, may result in reputational harm, liability, or new regulations, adversely affecting the business[307] - The growth of the marketplace depends on strategic relationships with Job Distribution Partners and Job Acquisition Partners; failure to maintain these could impair competitiveness and operating results[309][310] - The business is seasonal, with hiring activity typically decelerating in the fourth quarter, making forecasting more difficult[314] - Reliance on internal tools for performance metrics (e.g., Quarterly Paid Employers, Revenue per Paid Employer) means inherent measurement challenges and potential inaccuracies could harm reputation and business[315] - Substantially all revenue is derived from job advertisements; any adverse factor affecting their sale could harm business and operating results[316] - Failure to effectively expand sales and marketing capabilities, or meet demands for customized features and high-quality technical support, could harm user base growth and financial results[318][319][320] - A history of net losses and anticipated increasing operating expenses mean the company may not sustain profitability[321][322] - Reliance on Amazon Web Services (AWS) for hosting means any disruption or material change to the arrangement could adversely affect the business[323][324][325] - Inability to optimize websites for mobile access or offer a compelling mobile app could lead to loss of employers and job seekers and negatively affect competitiveness[326][327] Legal and Regulatory Risks Legal and regulatory risks include security breaches, payment and fraud risks, evolving data privacy laws (like GDPR, CCPA, CPRA), anti-corruption and anti-money laundering laws (FCPA, Bribery Act), the complexities of international expansion, and the challenges of protecting intellectual property rights - Security breaches (hacking, phishing) or other data privacy incidents could harm reputation, reduce demand, disrupt operations, and incur significant legal costs or liabilities[330][331][332] - Payment and fraud risks, including illegal activities, unauthorized use of payment information, and misrepresentation, could lead to liability, chargebacks, reputational damage, and loss of user confidence[334][335][336] - Changes in data privacy laws (e.g., GDPR, UK GDPR, CCPA, CPRA) or failure to comply could increase costs, require service modifications, and result in investigations, fines, litigation, and reputational harm[337][338][339][340] - Failure to comply with anti-corruption and anti-money laundering laws (e.g., FCPA, Bribery Act) could lead to penalties, fines, criminal/civil lawsuits, and reputational damage[342][343][344][345][347] - Expansion into international operations subjects the company to additional costs and risks, including compliance with diverse foreign laws and regulations, and may not be successful[348][350][351][352] - Privacy concerns and laws may reduce the effectiveness of the marketplace and disrupt communication processes, leading to fines, penalties, or liabilities[353][355] - Legal proceedings, regulatory disputes, and governmental investigations could incur significant expenses, divert management's attention, and materially harm the business[356][357] - Failure to protect intellectual property rights or claims of infringement by others could diminish brand value, weaken competitive position, and adversely affect business and financial condition[358][360][361][362] - Adverse tax laws or regulations, or changes in their application, could increase service costs and negatively impact operating results and cash flows[363][364] Other Risks Related to Our Business Additional business risks include vulnerability to catastrophic events, the adverse effects of indebtedness on liquidity and financial condition, the potential need for additional capital and associated dilution, the strains of being a public company, limited management experience in public company operations, and the impact of changes in accounting principles or estimates, and currency exchange rate fluctuations - The business is vulnerable to damage or interruption from catastrophic events (e.g., earthquakes, fires, public health crises like COVID-19, terrorism), which could disrupt operations and impact revenue[366] - Indebtedness of $550.0 million could adversely affect liquidity, limit access to additional financing, divert cash flow, increase vulnerability to economic changes, and raise borrowing costs[367][368] - Inability to generate sufficient cash to service debt obligations could lead to liquidity problems, forced asset sales, or refinancing at unfavorable terms, potentially resulting in default or bankruptcy[369][370][371][372] - Covenants in debt agreements restrict operations, and non-compliance could lead to acceleration of indebtedness and adverse effects on business and financial condition[373][374][375] - Merger and acquisition activities could require significant management attention, disrupt business, dilute stockholder value, and adversely affect operating results if not successfully integrated[376][377] - Additional capital may be required for business growth, and if not available on reasonable terms, could lead to stockholder dilution or restrictive debt covenants[378][379] - Being a public company strains resources, diverts management attention, and increases costs due to compliance with SEC, Sarbanes-Oxley Act, and stock exchange requirements[380][381][382][383] - Management's limited experience with public company operations could divert attention from day-to-day business and adversely affect results[384] - Changes in U.S. GAAP or incorrect estimates/judgments in critical accounting policies could adversely affect reported financial results[386][387] - Fluctuations in currency exchange rates, particularly for international expenses, could harm operating results and financial condition, as the company does not currently engage in hedging activities[388] Risks Related to the Ownership of Our Class A Common Stock Risks specific to owning ZipRecruiter's Class A common stock include market volatility, the impact of the dual-class stock structure on voting control, potential effects of the share repurchase program, reliance on analyst coverage, implications of its 'emerging growth company' status, the absence of dividends, and provisions in charter documents and Delaware law that could hinder acquisitions or limit stockholder influence - The price of Class A common stock is subject to high volatility due to various factors, including financial performance, macroeconomic conditions, market speculation, and industry announcements, potentially leading to securities class action litigation[389][391] - The dual-class stock structure concentrates voting control with pre-listing stockholders (directors, executive officers, 5% stockholders), limiting Class A holders' ability to influence corporate matters like director elections or change of control transactions[392][394] - The dual-class structure may adversely affect the trading market for Class A common stock by preventing inclusion in certain stock indices and potentially causing negative commentary from stockholder advisory firms[395] - The share repurchase program could affect stock price, increase volatility, diminish cash reserves, and may be suspended or terminated at any time, potentially decreasing the trading price[396][397] - Reliance on securities or industry analysts' research means inaccurate or unfavorable reports could cause Class A common stock price and trading volume to decline[399] - As an 'emerging growth company' (until December 31, 2022), the company takes advantage of reduced disclosure requirements, which may make Class A common stock less attractive to some investors[400] - The company does not intend to pay dividends for the foreseeable future, requiring investors to rely on stock price appreciation for gains[401] - Provisions in charter documents (e.g., classified board, super-majority voting, 'blank check' preferred stock) and Delaware law (Section 203) could delay or prevent an acquisition or limit stockholders' ability to replace management[402][404][405] - Exclusive forum provisions in charter documents could limit stockholders' ability to choose a favorable judicial forum for disputes, potentially discouraging lawsuits[406][407][408] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity for the three months ended September 30, 2022, showing repurchases of 3.36 million shares of Class A common stock at an average price of $17.39 per share, with $49.9 million remaining available under the program Share Repurchase Activity (in thousands, except per share amounts) - Three Months Ended Sep 30, 2022 | Period | Total Shares Purchased (thousands) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value Remaining (thousands) | | :--- | :--- | :--- | :--- | :--- | | July 1, 2022 to July 31, 2022 | — | $— | — | | | August 1, 2022 to August 31, 2022 | 330 | $16.99 | 330 | | | Rule 10b5-1 plan repurchases | 1,046 | $17.59 | 1,046 | | | September 1, 2022 to September 30, 2022 | | | | | | Rule 10b5-1 plan repurchases | 1,987 | $17.64 | 1,987 | | | Total | 3,363 | $17.39 (approx) | 3,363 | $49,889 | - During the three months ended September 30, 2022, the company repurchased 3.36 million shares of Class A common stock, including shares under an Accelerated Share Repurchase (ASR) and Rule 10b5-1 plans[410][411] - As of September 30, 2022, $49.9 million remained available for future repurchases under the $250.0 million share repurchase program[410] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[412] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable - Mine safety disclosures are not applicable[413] Item 5. Other Information No other information was reported - No other information was reported[414] Item 6. Exhibits All exhibits filed as part of the Form 10-Q are listed, including organizational documents, agreements, and certifications Key Exhibits Filed | Exhibit Number | Description | | :--- | :--- | | 3.1 | Sixth Amended and Restated Certificate of Incorporation | | 3.2 | Restated Bylaws | | 4.4 | Indenture, dated as of January 12, 2022, among ZipRecruiter, Inc. and Computershare Trust Company, N.A., as trustee | | 10.1 | Termination of Lease Agreement, dated September 7, 2022 | | 31.1, 31.2 | Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act | | 32.1, 32.2 | Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act | | 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE | Inline XBRL Instance Document and Taxonomy Extension Documents | | 104 | The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL | Signatures The report is officially certified by ZipRecruiter, Inc.'s Chief Executive Officer and Chief Financial Officer on November 9, 2022 - The report is signed by Ian Siegel, Chief Executive Officer, and Timothy Yarbrough, Chief Financial Officer, on November 9, 2022[420][421]